Equities rise, with eyes on US inflation data

Bloomberg

US equity index futures rise on Thursday, ahead of key US inflation data that could determine how much further the Federal Reserve’s policy-tightening cycle will run.
Futures contracts on the S&P 500 were up 0.5% as of 5:55 am in New York, while those on the Nasdaq 100 gained 0.3%. The benchmark index had tumbled to its lowest since November 2020, as concerns mounted about the impact of hawkish Fed policy, especially on rate-sensitive sectors such as semiconductors. Europe’s Stoxx 600 gauge steadied, while on
currency markets, the dollar slipped.
Upcoming monthly consumer-price figures may determine if Federal Reserve delivers a fourth-straight outsized hike in interest rates. The data is expected to show a slight deceleration to 8.1% annually but all eyes are on the ‘core’ reading that excludes food and energy. This is seen rising 6.5% from
a year earlier, returning to a four-decade high hit in March.
Any sign that price pressures remain elevated may send markets into sell mode. It would also boost Treasury yields and the dollar, potentially adding to its nearly 15% year-to-date gain.
“The question on everyone’s minds is whether rate hikes, easing energy prices and reduced supply chain constraints are feeding into the economy and lowering price pressures,” said Sumit Kendurkar, senior trader at Optiver in Amsterdam. “If September’s producer price index is any indication, that may still not be the case.”
However investors note the Fed is already more or less priced to raise rates by about 75 basis points next month, and most markets have fallen sharply in recent weeks.
The aggressive policy-tightening and expectations of more to come have sent the link between the S&P 500 and Citigroup Inc.’s widely followed surprise index for the US economy to the most negative since 2015.
The third-quarter company earnings season also kicks off this month and the key question for investors is whether profit margins remained resilient amid surging costs. That’s especially so for chip companies, which have issued a string of warnings in recent days.
On currency markets, the dollar eased against most other currencies and US 10-year Treasury yields held off multi-year highs hit recently.
“If (core US CPI) comes in below expectations, you can anticipate a pretty aggressive dollar selloff as we can then start to price in a peak in the Fed funds rate,” said Peter Kinsella, head of currency strategy at asset manager UBP.
Investors in Britain were waiting to see whether the Bank of England will extend its October 14 deadline to end an emergency bond-buying program it launched to soothe markets. It has so far declined to do so. However, long-dated bonds rallied sharply and the pound firmed as the recent selloffs lured in buyers.